Project 1
Write a 1,000 word report on interpreting financial information.
Your report should identify the financial reports used by an organisation in the tourism, travel, hospitality, and event sectors. Explain the purpose of the reports identified and how the organisation can use each report to monitor organisational performance relating to operational or departmental financial activities.
Note: please provide accurate numbers and make sense in each report such as sale forecast, balance sheet, loss and profit statement report. There is 2 samples attached file for the assessment task. Also, the reference needs to be up to date sources.
STUDENT NAME: WAT MAN YAP STUDENT ID: S2593 SITXFIN002 INTERPRET FINANCIAL INFORMATION Write a 1000 word report on interpreting financial information. Your report should identify the financial reports used by an organisation in the tourism, travel, hospitality, and event sectors. Explain the purpose of the reports identified and how the organisation can use each report to monitor organisational performance relating to operational or departmental financial activities. ASSESSMENT 2 – STUDENT INFORMATION INTERPRET FINANCIAL INFORMATION OF HOTEL EXECUTIVE SUMMADY The financial reports used by an organisation in the tourism, travel, hospitality, and event sectors are balance sheet, income statement and cash flow statement. CONTENTS The purpose of the financial reports 4 The uses of each reports 5 Review of hospitality and tourism financial statements 7 Profit Planning 9 Service industry profit and loss statements 11 Hotel profit and loss statements 12 Reference List 13 Appendix 14 The purpose of the financial reports The balance sheet is another name for the statement of financial position. It is one of the main financial statements and it reports an entity's assets, liabilities, and the difference in their totals. The amounts reported on the statement of financial position are the amounts as of the final moment of an accounting period. The structure of the statement of financial position is similar to the basic accounting equation. For instance, a corporation will report amounts in the following format: Assets = Liabilities + Stockholders' Equity. A non-profit organization's format will be: Assets = Liabilities + Net Assets. The statement of financial position must reflect the basic accounting principles and guidelines such as the cost, matching, and full disclosure principle. Accordingly, the statement of financial position is more meaningful when it is prepared under the accrual method of accounting. An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period. Also known as the profit and loss statement or statement of revenue and expense, the income statement is the one of three major financial statements in the annual report. The other two financial statements are the balance sheet and the statement of cash flows. All three provide investors with information about the state of the company's financial affairs, but the income statement is the only one that provides an overview of company sales and net income. Unlike the balance sheet, which covers one moment in time, the income statement provides performance information about a time period. It begins with sales and works down to net income and earnings per share. The purpose of drawing up a cash flow statement is to see a company's sources of cash and uses of cash, over a specified time period. The cash flow statement is traditionally considered to be less important than the income statement and the balance sheet, but it can be used to understand the trends of a company's performance that can't be understood through the other two financial statements. While the cash flow statement is considered the third most important of the three financial statements, investors find the cash flow statement to be the most transparent, so they rely on it more than the other financial statements when making investment decisions. The cash flow statement is broken down into three categories: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. The uses of each reports An organization can use the balance sheet to know the exact amount of their assets. An organization’s balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. An organization’s equity is the difference between total assets and total liabilities. An organization can use the balance sheet to determine if their business has enough working capital to sustain its operation. Working capital is the difference of current assets less current liabilities. It measures if the company still has enough current resources after deducting its due loan or obligations. If the result of computation is positive, that means the organization is still doing okay. By contrast, if the computation is negative, that means the organization is in trouble. There’s a high risk of bankruptcy or inability to continue operating. An organization can use the income statement to calculate financial ratios. Analysts use the income statement for data to calculate financial ratios such as return on equity (ROE), return on assets (ROA), gross profit, operating profit, earnings before interest and taxes (EBIT), and earnings before interest taxes and amortization (EBITDA). The income statement is often presented in a common-sized format, which provides each line item on the income statement as a percent of sales. In this way, analysts can easily see which expenses make up the largest portion of sales. Analysts also use the income statement to compare year-over-year (YOY) and quarter-over-quarter (QOQ) performance. The income statement typically provides two to three years of historical data for comparison. Besides that, an organization can use an income statement to track revenues and expenses so that they can determine the operating performance of their business over a period of time. Small-business owners use these statements to find out what areas of their business are over budget or under budget. Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Income statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales. They also can be used to determine income tax liability. It is very important for the organization to format an income statement so that it is appropriate to the business being conducted. An organization can use the cash flow statement to track the operating activities, investing activities and financing activities. - Operating activities consist of revenue-generating activities of an organization. Examples of operating activities include cash received through the sale of products or services as well as operating expenses paid, such as salary and wages, rent, and transportation. - Investing activities consist of payments made to purchase long-term assets, as well as cash received from the sale of long-term assets. Examples of investing activities are the purchase or sale of a fixed asset or property, plant, and equipment, and the purchase or sale of a security issued by another entity. - Financing activities consist of activities that will alter the equity or borrowings of a organization. Examples of financing activities include the sale of a company's shares or the repurchase of its shares. Review of hospitality and tourism financial statements The key financial statements produced from accounting systems which are relevant to hospitality and tourism managers are the: • Profit and loss statement • Balance sheet • Cash flow statement These statements are fundamental to the profit planning and control of business operations and are the basis om which to measure, analyse and interpret operating results in financial terms. Profit and loss statements The profit and loss statement is the primary financial report for managing routine operations at the property (unit) level. It summarizes trading operations in relation to revenues generated and expenses incurred during a particular financial period, indicating the resulting profit or loss. Basic profit and loss statements The structure of the traditional profit and loss statement has evolved over time through the development of business and commercial activities. In its basic form the profit and loss statement appears . £ Sales revenue 300,000 Less: cost of sales 90,000 Gross profit 210,000 Less: expenses 150,000 Net profit £ 60,000 Profit Planning Referring to Figure 2.1, the preparation of a profit and loss statement is based on a number of fundamental accounting principles and conventions, the most important of which is the matching principle, also known as the accrual principle. This principle requires all revenues generated and the expenses incurred (in the generation of the revenues) during a financial period are matched (accrued) in the profit and loss statement, regardless of when the cash was received or paid. The matching principle is crucial determining the true profit or loss position for a given financial period. By expanding the basic profit and loss statement with a little more detail in Figure 2.2, we can consider examples of the matching principle involving revenue and expenses in determining profit, as follows: Revenue example: Referring to Figure 2.2, if £5,000 of the £300,000 sales revenue was not received by the end of the period, the amount owing will reduce the cash position by £5,000, but will not affect the £300,000 revenue itself. £